| NEW YORK
NEW YORK Nov 25 The future volatility of
already becalmed oil prices is looking even more muted following
an historic deal between Iran and major nations that may ease
years of tensions.
Late last week, with an agreement over Iran's nuclear
program looking promising, the implied volatility in the U.S.
crude oil market fell to nearly 18 percent, its lowest in eight
months and near the lowest since the CBOE crude oil volatility
index began tracking the market in 2007.
The index, which is a measure of options pricing that gauges
expectation of how sharply U.S. oil prices will move over a
30-day period, has trended lower for two years. Growing U.S. oil
production and slower global demand have added to expectations
that crude oil prices may trade in a steady range for the next
few years, diminishing demand to buy options.
The CBOE index, which tracks the United States Oil Fund
, picked back up on Monday to trade at above 19 percent,
but the overall mood was still one of reduced volatility.
"A falling OVX means a very stable market," said Stephen
Schork, editor of the Schork Report in Villanova, Pennsylvania.
"The market is at a comfortable level, it has settled down into
this ($90-$95) range."
In the past, the oil options market has been a good gauge of
geopolitical market risk, spiking to more than 60 percent in the
latter half of 2011 when rhetoric from Israel and the United
States suggested a military attack on Iran could be a
possibility. Hedge funds rushed to buy calls on $150 crude as a
way to profit from a potential price spike.
But as the bellicose talk yielded to U.S. and European
sanctions, volatility faded. It spiked again to nearly 30
percent in August, as fears grew of an assault on Syria; and it
slumped again in mid-September after a last-minute deal to
destroy President Bashar al-Assad's chemical weapons.
"It appears to have been trending down ever since there was
no military action in Syria, but was very dramatic as the deal
with Iran unfolded, " said Russell Rhoads, a senior instructor
at The Options Institute at the Chicago Board of Options
The forward-looking index fell by more than 8 percent
between Nov. 8 and Nov. 22 to its low last week as hope for a
deal grew. The deal clinched on Sunday between Iran and six
world powers would curb Tehran's nuclear program in exchange for
some initial sanctions relief.
Open interest in the oil futures market, or the number of
long or short positions outstanding, fell by some 24 percent
between July and November, as prices fell.
This indicates "bullish money being excised out of the
market, not new money (being added) on the bear side," Schork
A key question for the oil market is whether Iran's oil
exports will grow. For a period of six months, Iran's crude oil
sales cannot increase, the U.S. State Department said on Sunday.
By Monday, uncertainty over when Iran will resume increased
exports stemmed losses in the oil futures market and boosted the
volatility index slightly higher.
The market's overall mood was muted on Monday, with only
light bidding for the "put skew" in the first quarter of next
year, according to one trader, meaning producers were likely
buying puts, to limit their downside price risk.